Brokers match up business owners with business lenders. They can save you time, energy and money. But do they offer value in the small business loans market?
Why do people use brokers?
Using a broker for a business loan is a bit like using a travel agent for booking a holiday or an estate agent for buying a house; you could do the hard work yourself, but it’s a lot easier to use someone who classes it as their day job.
But there are other advantages to using a broker for finding small business loans, secured loans and unsecured loans:
Getting the best rate – if you just went to a single lender for a loan you might not see what the whole market offers. A broker will consider a much wider selection, preferably the entire market, meaning you know you’ll have an option on the best loan deals available.
Alternative funding – it’s not just the banks that lend money, there are a growing number of alternative lenders out there, including peer-to-peer, angel investors and online finance providers offering more flexibility than the banks. A broker can access these providers.
Reduce your time wasting – whilst you are running your business, your broker is doing the hard work and finding all the best deals to match your requirements. You can apply to each individually, but will it take too much time? Let someone else do the graft for you.
Using broker experience – most brokers can utilise a network of lenders, contacts and relationships and see when a good deal really is a good deal and when the details don’t quite match up to expectation. They also know the entire finance market and can offer advice on a variety of different forms of finance. And most importantly, be able to explain it back to you in plain English.
While these all look like great reasons to go through a broker, make sure you fully vet them. Don’t be shy to question brokers on their credentials:
- How many lenders will you be talking to?
- What is the total cost of my loan?
- How do you get paid?
- What special agreements do you have with specific lenders?
- What happens if the loan defaults?
- Is my information confidential?
- Can I think about it?
Business owners perceive brokers offer more value than banks
There is also a lot of perceived value in going with a broker rather than the bank. Many small business owners believe they will get a much better deal from approaching a broker than they will by going to their bank.
Then there is the actual experience of going through a loan application which can often be lengthy, include a lot of information and involve multiple visits. Which can often result in a negative experience for the business owner.
Brokers can offer businesses more flexible terms, enhanced benefits, less security on your assets and ensure that debt exposure is kept away from the bank that looks after your business account.
Size of the small business loans market in the UK is bigger than you think
The amount of business loans lent out at the end of the 2015 totalled $163 billion. Most of this to small and medium sized businesses.
The size of the alternative finance industry has also seen marked rises. Lending to businesses is projected to hit £12.3bn in 2020, which is a tenfold increase on the figure in 2014. Extraordinary, considering that the figure was just £90 million in 2011.
Brokers are seen as the natural place to access these lenders
The value of a small business loan will vary from borrower to borrower, but to put into perspective where the most popular business loans are, a quick glance at money.co.uk shows that three of the top five most popular loans are from alternative lenders.
The loans found here are a mix of standard short term loans to peer-to-peer, government funded scheme and invoice finance.
Small business loans are often key to overcoming growth and cash flow problems for small businesses. To learn more about how business loans or our finance packages can help grow your business contact us today.